| Reader's Comments |
 |
I enjoy your show (WHITE PLAINS WEEK) thoroughly. I watch it twice a week. You say things that must be said.
-- Hal Masback, White Plains Downtown BID, former Councilman
|
|
| White Plains Week |
|
 CLICK HERE TO WATCH NOW!
John Bailey
Jim Benerofe
welcome
Peter Katz
to the
WHITE PLAINS WEEK
NEWS TEAM
Fridays at 7:30
Mondays at 7
on
WPPA-TV
Channel 76
NEW!
See Current Edition of
White Plains Week
on the Internet at
www.whiteplainsweek.com
|
|
| User Info |
|
|
|
|
|
|
|
Gas Pricing Is a Gas
Posted on Tuesday, September 06 @ 00:29:19 EDT by jfbailey
|
|
|
WPCNR MR. & MRS. & MS. WHITE PLAINS VOICE. September 6, 2005: A reader, reacting to $3.50 a gallon for regular gas prices in White Plains ruminates about reasons for the rapid rise:
John,
When discussing the recent rise in gas prices, I frequently hear something similar to: ‘How can stations get away with raising the prices on gas that they have already bought and paid for at a much lower cost?’
Gasoline along with many other high-volume, low-margin highly-competitive goods is offten priced based on ‘replacement cost’. Perhaps a quick example with made up numbers would help to see what is involved:
(more)
Let us say a station has a 2,000-gallon tank and fills it up on the first of the month at $1.00/gallon. The dealer gets an invoice for $2,000 which he takes out a loan to pay. The dealer sells it for $1.10/gallon. He sells his last gallon at the end of the month, and gets a fresh delivery at the same price and another invoice for $2,000. He has taken in $2,200 from which he pays the $2,000 invoice, $80 for salaries, $100 for rent and taxes, he pays $15 towards his loan, and keeps $5. Life is good.
On the 15th of the next month the distributor raises the price to $1.20/gallon, but the dealer continues to sell his ‘paid for’ gas at $1.10. Again, he sells his last gallon at the end of the month, and gets a fresh delivery and an invoice for $2,400. He has taken in $2,200 and has to borrow an additional $395 to pay the $2,400 invoice, $80 for salaries, $100 for rent and taxes, and $15 towards interest. So at the end of the month, after working hard, selling all of his merchandise, and taking care of his employees, he has $395 less money!
If prices stay at $1.20/gallon the next month, he does not magically make it all back; he still only takes in $5 more than his expenses which goes to offset his previous $395 loss.
If, instead, he raises his prices on the 15th when the distributor does, then at the end of the month he will have taken in $2,400 and will only be $195 out-of-pocket.
Things would even out if he could always sell his gas based on what he paid for it -- keeping prices low when the wholesale prices are rising, as people demand, and keeping prices high as he unloads his expensive inventory even though the wholesale price has dropped. Oops, that would never happen, unless his was the only station for miles around. As prices decline, he will have to sell his high priced inventory for less than it cost him or he will lose business to other stations. Anyway, how often do prices come back down?
Or maybe, he decides to reduce his risk and cary hardly any inventory and get deliveries twice a day. Well, the consumer would still see prices that quickly changed to match the wholesale price changes, and we would have wasted additional resources making the unnecessary extra deliveries and the roads would be crawling with gasoline tank trucks..
So, people in these types of business often price their goods based on the anticipated cost of replacing their inventory, and they will adjust their prices as they are aware of changes in their distributor’s prices.
...don
dhughes
|
| |
| Article Rating |
|
Average Score: 3
Votes: 5
|
|
|
